Navigating UAE VAT Legislation on Vouchers

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Introduction

Vouchers have become integral tools for businesses across industries in the UAE, enhancing customer engagement and revenue. The implementation of Federal Decree-Law No. (8) of 2017 on Value Added Tax (UAE VAT Law) and Cabinet Decision No. (52) of 2017 have introduced considerations that businesses must carefully evaluate. In this write-up, we explore the VAT provisions applicable to the issue of Vouchers and plausible challenges.

What is a Voucher

According to Article 1 of the UAE VAT Law, a Voucher is defined as “Any instrument that gives the right to receive Goods or Services against the value stated thereon or the right to receive a discount on the price of the Goods or Services.” Vouchers exclude postage stamps issued by the Emirates Post Group. Article 28(6) of the UAE VAT Regulations emphasizes that an instrument will not be considered as a Voucher, unless the monetary value for which the Voucher may be redeemed is identifiable at the time the Voucher is issued. Further, Article 7(1) of the UAE VAT Law clarifies that the sale or issuance of a Voucher is not considered a “supply”, unless the received consideration exceeds its advertised monetary value. This implies that a Voucher gifted, supplied or sold must bear a monetary value. Also, the seller must receive a consideration greater than the monetary value of the Voucher. If the consideration is lower than the monetary value of the Voucher, there is no “supply” for the purpose of VAT and consequently, there is no VAT liability. Though simple, real life scenarios may pose challenges in determining whether a token, gift card etc. can be considered as a Voucher or not, especially when the benefit is in kind and the value of the Voucher is not clearly identifiable.

Monetary Value of Vouchers

Article 40 of the UAE VAT Law provides that the value of supply of a Voucher is the difference between the consideration received by the supplier of the Voucher and the advertised monetary value of the Voucher. Article 28 of the VAT Regulations clarify that:

- the value of a discount shall not include the value of any Voucher used; and

- where the Voucher was issued and sold by the supplier for consideration that is less than the value stated on the Voucher, the value of a discount shall be the difference between the value of the Voucher and the consideration paid for that Voucher.

VAT on Vouchers Supplied

UAE levies VAT at 5% 1 of the value of supplies. Thus, Vouchers supplied would be subject to 5% VAT in the UAE. Article 26(4) of the UAE VAT Law provides that the date of a supply of a Voucher shall be the date of issuance or supply thereafter. Article 40 of the VAT Regulations provides that Education Services shall be subject to 0% VAT in the UAE. However, Vouchers 2 issued for food and beverages supplied at the educational institutions are not covered under the 0% VAT rate and shall be subject to the normal 5% VAT rate.

Conclusion

Businesses encounter several challenges when dealing with voucher transactions under the UAE VAT legislation. Distinguishing between instruments that qualify as Vouchers and those that do not can be complex. Unique characteristics of digital tokens and vouchers add complexity to their classification. Coordinating VAT responsibilities across the supply chain, determining the correct place of supply, identifying the date of supply, and accurately calculating the VAT base are among the challenges businesses must address for compliant VAT practices.

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